Why TV dollars won't become digital pennies

March 12, 2009

If you want to have a "show me the money" conversation in Hollywood, mention two words: online video. The discussion will quickly turn to dogs on skateboards and other content that advertisers avoid.

However, the story for professionally produced content is different. ABC's "Lost," for example, was seen by more than 1.4 million unique viewers in December, according to Nielsen. Transforming this growing traffic into a market rivaling traditional television may require decades. In the interim, the industry is working on more targeted programming and advertising.

First the good news. The audience for online professional video is younger, wealthier and better educated than the broader TV audience. Advertisers crave these 18-49 year olds, lifting CPMs (cost-per-thousand impressions) for premium online video over $25, which is higher than television.

Advertisers also like the ad recall rates of 21 percent for streaming video, more than double the recall for TV, according to the GfK Group. Moreover, digital consumption is additive for a loyal fan base. More than 70 percent of online viewers claim to be fans who were unable to view the original show.

This high quality audience is also growing quickly. While still only a tiny fraction of the $60 billion U.S. television advertising market, research firm eMarketer estimates that spending for U.S. online video advertising will double from $587 million last year to $1.25 billion next year.

By 2013, as much as 70 percent of that revenue will likely come from professional content (The Diffusion Group). That means more advertising will be available to support professional video content online, and a larger, more affluent demographic will be watching.